The emerging markets in Europe look set for expansion

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Wednesday, 07 October 2009 11:52

Matthias Siller, manager of Baring Emerging Europe plc (BEE), comments: “In Russia, there may be a temporary halt in the growth of the middle class but we still expect it to expand rapidly over the medium-term as wage growth returns.

The resilience of domestic consumption elsewhere in the region (again we would highlight Poland) has been noteworthy. Overall, it’s important to get recent events into context; 2009 has been a year of adjustment for the emerging market consumer, but not a year of fundamental change.”

Many of the major players in Emerging Europe – most notably Turkey, Poland and Russia – have recovered from the financial crisis much quicker than their Western counterparts.

“In Turkey, the population is growing fast and we expect consumption to increase to meet pent up demand. There is significant and growing demand for mortgages and consumer products. The resilience of the country’s banking sector has been impressive. It may take time before the extent of the change dawns on many investors but we are very positive on the long-term prospects for Turkish financials.

“Poland’s resilience to the economic shocks has also been better than anticipated. Poland is the only eastern member of the EU to avoid a recession since the start of the financial crisis as a result of its broad-based, large scale economy and timely income rate tax cuts which stimulated the economy. These positive factors were important to Poland as they proved that it is not dependent on foreign investors to prop up the economy.

“Russia experienced a severe contraction in GDP over 2008 and many investors questioned how it was going to return to its original growth levels of around 8%. However, the Russian economy is displaying a pronounced bounce which is pointing towards a ‘V’ shaped recovery. The extent of the recovery is surprising but demonstrates that the government’s fiscal stimulus has proved successful.”

Matthias concludes: “Overall, the Emerging European business model has been proven. The social, political and economical systems have remained stable, even under extreme duress. This supports the belief that long term growth prospects exist in the region.

“Emerging Europe is regaining its competitive edge as labour prices have taken a knock-back, increasing the chances of further foreign investment which in time will strengthen the position of the consumer. This investment will be aided by the close ties with Western Europe. Emerging European consumers are looking more and more attractive particularly as they are virtually debt free compared to their Western European counterparts.”